Why do some people overuse credit and acquire debt beyond their means? Why do consumers fail to recognize they have too much debt, and what might affect this lack of insight? Although credit has become a common way by which consumers acquire goods, for some, managing credit can be problematic. Credit problems arise when consumers obtain credit beyond what they can afford to pay back and accumulate debt that exceeds their annual income.

Consumers can accumulate debt from credit via personal loans, revolving credit on credit cards (bank or store-issued), or installment credit. Of these, credit cards are one of the primary vehicles of consumer debt (Chicago Tribune, July 11, 1994). Consider the following statistics: in 1995, 376 million VISAs and MasterCards were in circulation, an increase of 80% over the previous five years. Consumers owe $360 billion on their credit cards, a debt load comprising a third of all consumer loans (Gullo and Marino, 1996). Credit cards have become such a common mode of payment because they are easily obtained and can help consumers cushion the effects of unexpected expenses and hard economic times. However, excessive use of credit cards may result in unmanageable debt and could lead to a tainted credit record. Accompanying the increase in consumer debt, for instance, has been an increase in personal bankruptcies. In mid-1995, 832,415 consumers declared themselves insolvent, up 6% from the previous year (Gullo and Marino, 1996).

In addition to the serious financial consequences, there is a social stigma associated with excessive debt. Debtors are perceived to be reckless, overindulgent, impatient and irresponsible individuals (Livingstone & Lunt, 1992). Given such lasting and negative consequences of credit overuse, the importance of investigating its antecedents cannot be overemphasized. Although attempts have been made to identify sociodemographic and personality variables that profile consumer types likely to get into problematic financial situations (e.g., Dessart and Kuylen, 1986; Livingstone and Lunt, 1992), few studies have focused directly on the antecedents of credit card overuse. Specifically, there may be dispositional characteristics that lead consumers to accumulate excessive credit card debt. Credit cards are more easily accessible than many other forms of credit, and their convenience of use may contribute to the their overuse by impulsive (Rook, 1987) or compulsive shoppers (Faber and OGuinn, 1988).

Consumers tendency to focus on a specific temporal "region" may also contribute to their indebtedness. Both impulsive and compulsive shoppers exhibit a general tendency to focus on the present, and a lack of insight into the long-term consequences of current spending patterns, both of which can lead to problematic debt situations (Rook, 1987; OGuinn and Faber, 1989; Hoch and Loewenstein, 1991). The relationship between problematic debt and temporal orientation, however, has not been empirically documented. The objective of this paper is to explore the relationship between consumers temporal orientation (i.e., present versus future) and overuse of credit cards.

LITERATURE REVIEW

Credit card users and usage

The study of credit cards has focused on profiling users versus nonusers on demographic (Matthews and Slocum, 1969; Adcock, Hirschman, and Goldstucker, 1977; Hirschman and Goldstucker, 1978; Lindley, Rudolph, and Selby, 1989; Martell and Fitts, 1981; Kinsey, 1981), life style (Plummer, 1971), and psychographic variables (Wiley and Richard, 1975). The general profile that emerges from this research describes credit card users as educated, socially active and mobile individuals from upper income brackets. Moreover, heavy credit card users are described as younger (25-34), married, college graduates, with professional or managerial occupations (Wiley and Richard, 1975).

An additional research stream has focused on credit card usage and its effects on spending patterns. For instance, Hirschman (1979) finds that the total amount of expenditures is higher when consumers use credit cards (bank or store-issued) than when they use cash in a real spending situation. Feinberg (1986) offers an explanation for the increased spending observed when consumers use credit cards, suggesting that credit cards serve as conditioning stimuli for spending. Specifically, Feinberg finds that the probability of spending, speed of decision to spend, and amount of spending are facilitated by credit card cues. Deshpande and Krishnan (1980), however, find that consumers who use credit cards do not necessarily spend more, but instead use credit cards when purchasing more expensive items. These researchers also find that, contrary to popular beliefs, credit card possession is unrelated to impulse buying. In sum, the literature links credit cards to increased spending (Hirschman, 1979), and as a conditioning stimuli, credit card cues are proposed as contributors to credit overuse (Feinberg, 1986).

Consumer psychology of debt and savings

While the literature does not address the characteristics of consumers with a potential to accumulate excessive debt from credit cards, several studies have profiled consumers with problematic debt in general. Desart and Kuylen (1986), for instance, conclude that those families more likely to have excessive debt are renters, have children between 7 and 18, and have a number of outstanding balances with different companies, especially mail order firms. They further suggest that factors contributing to problem debt include (a) a lack of understanding of the consequences of financial dealings, (b) easily accessible credit, and (c) a lack of money-management skills.

Livingstone and Lunt (1992) also identify characteristics of consumers in debt as well as demographic and economic factors that discriminate debtors from non debtors. Specifically, they find that social class has a negative relationship with debt, while disposable income is positively related to debt. They also note that the absolute number of debts one has is positively related to the overall level of indebtedness. While stereotyped conceptions of savers and borrowers suggest that their behaviors have different motivations and consequences, Livingstone and Lunt (1993) report that their financial strategies are not necessarily mutually exclusive. In fact, these researchers find a considerable number of respondents who simultaneously possess both debt and savings.

In addition to sociodemographic and economic variables, individual difference variables and attitude measures have been used to identify problem debtors. Awh and Waters (1974) find, for example, that consumers attitudes towards bank charge cards are related to the activity of their cards. Livingstone and Lunt (1992) also suggest that debtors tend to hold somewhat favorable attitudes towards credit and debt, especially because credit cards allow immediate purchases which would otherwise need to be postponed. One individual difference variable found to impact excessive debt is locus of control (Dessart and Kuylen, 1986; Lunt and Livingstone, 1991; Livingstone and Lunt, 1992). Dessart and Kuylen (1986) explain that "the more borrowers feel that they can control their lives and the things around them (internal control), the less likely they are to get into financial difficulties" (p.320).

The psychological profile of those in problem debt has also been studied from the perspective of addiction theory (Tokunaga, 1993). Tokunaga (1993) hypothesizes that consumers with credit-related problems have a psychologically similar profile to that of addicts. He finds, for instance, that external locus of control and lower self-efficacy are among the characteristics of credit overusers. According to Tokunaga, these consumers see money as a source of power and prestige, and are less likely to take appropriate steps to retain their money. However, contrary to Tokunagas expectations, consumers with credit problems do not exhibit higher levels of risk-taking or sensation-seeking, as would be predicted by an addiction model.

Temporal Orientation

One unexplored individual difference variable with the potential to contribute to a better understanding of problem debt is temporal orientation, or an individuals tendency to focus on one temporal region. An individuals future orientation, for instance, may be exhibited by his/her tendency to set goals and chart plans to meet them, while a present orientation may be exemplified by a tendency to behave spontaneously (Jones, 1994). Jones (1994) developed the Temporal Orientation Scale to measure individual differences in this construct. Simple correlations with several other personality variables support the face validity of this scale. Specifically, impulsivity/sensation seeking is negatively related to a future orientation (r=-.45), while neuroticism/anxiety is negatively related to a present orientation (r=-.12).

Individual differences in perceptions of the present-future dichotomy have been studied across cultures (e.g., Jones, 1988), and investigated in relation to scholastic achievement of college students (e.g., Jones, 1994). However, research addressing the effects of temporal orientation on consumer behavior in general, and on credit oveuse in particular, are somewhat limited (e.g., Walsh, 1994; Walsh and Spiggle, 1993; Bergadaa, 1990).

Bergadaa (1990), for example, posits that differences in temporal orientation lead to different consumption patterns and product preferences. She bases such argument on the fact that future oriented consumers do not believe in fate and judge themselves to be responsible for their own future, while present oriented individuals are more reactive to their environment and consider themselves to be more subject to fate. In addition, present oriented consumers primary concern is with improvement of their current situation, while future oriented individuals look forward to changes, and try to remain flexible in order to take advantage of upcoming opportunities.

Walsh (1994), on the other hand, argues that temporal orientation affects consumers higher-order choices (i.e., choices which precede all purchase decisions) such as savings and spending. Walsh (1994) reports that present-oriented consumers give minimal thought to saving and spend freely in the present. Future-oriented respondents, however, exhibit a pattern of higher order choices suggesting anticipation of future responsibilities and potential restrictions. Walsh (1994) concludes that "future oriented individuals recognize trade-offs between present and future higher order choices while present oriented individuals do not" (p.316).

Temporal Orientation and Credit Card Overuse

It is important to recognize that consumers concept of time and their focus toward a specific temporal region may not only influence higher order choices, but more specific consumption actions as well. Specifically, when using credit cards, temporal orientation may influence consumers decisions to: (a) charge purchases, (b) carry a balance and pay finance charges or (c) pay the full balance every month. Each of these decisions hinges upon a specific conceptualization of time.

First, consumers who overuse credit fall into what Matthews and Slocum (1969) refer to as the "installment segment". That is, unlike the "convenience segment," who uses credit cards for convenience and pays off the balance at the end of each month, the "installment segment" relies upon credit cards as a high-interest source of financing. Today, the installment segment appears to be quite large. Over 50% of all purchases charged by consumers are still owed to card issuers a year later, and the average balance of a typical credit card user is in excess of $3,000 (Chicago Tribune, July 11, 1994).

A consumers decision to use installment credit has to be made after considering his/her future ability to pay. This entails thinking about how long it will take to pay off the debt (i.e., how many installments?, over how many months?), as well as consideration of the finance charges that will be accumulated while paying off the debt. For instance, it has been reported that on a balance of $1,800 at 18 percent interest, it would take a consumer 22 years and 4 months to pay off the debt when only the required minimum payment is made. After such a time, the interest paid would amount to $3,797, making the total debt $5,597 (Gullo and Marino, 1996). We propose that a present as opposed to a future temporal orientation may hinder such reasoning, contributing in turn to an overuse of credit.

Second, since present oriented consumers are not concerned with planning for the future and prefer to live in the now (Bergadaa, 1990; Jones, 1994), they may be less likely to consider the long-term consequences of overuse of credit cards. These consumers may be more likely to have a revolving credit, to make only the minimum payment on their cards, and to resort to additional cards as they "max-out" their credit limits. Thus, these consumers may have an above average number of credit cards. The current study empirically investigates the relationship between temporal orientation and credit overuse, with our hypothesis being that consumers who possess a present versus a futur temporal orientation are more likely to overuse credit.

STUDY

Method

Overview To explore the relationship between temporal orientation and credit card overuse, the temporal orientation scale (Jones, 1994) was administered. Subjects were also queried about the number of credit cards they possessed (a surrogate for abuse potential) and whether or not they were employed (a covariate found to be relevant in previous research (e.g., Martell and Fitts, 1981). The nature of the dependent measure (number of credit cards) required a loglinear modeling approach to analysis.

Subjects Eighty-eight University of Florida students in an Introduction to Marketing course completed the survey in exchange for course extra credit. The data from one subject who refused to respond to the dependent measure had to be dropped from the analysis, leaving eighty-seven usable subjects.

Dependent Measures The desire to study credit card overuse presented us with several logical dependent measures. These included total amount of credit card debt, average monthly payments, debt to income ratio, and the number of cards held. Unfortunately, all but the last measure were obtainable from our sample. Many of the subjects flatly refused to answer questions about balances and income. Lea, Webley, & Levine (1993) note that the sensitive nature of this topic has at times prevented an accurate and complete description of the causes and consequences of excessive debt and credit overuse.

In addition to a refusal to give sensitive information, inconsistencies found in the replies of those who responded suggested to us that this sensitive data was unreliable (e.g., a subject states that he never carries a balance, but reports currently having one). There also seems to have been a great deal of confusion about credit terminology. By examining the responses, it was clear that many subjects were reporting their "minimum monthly payment" as their "total balance". The combination of outright refusal to give information and clear confusion about credit terms made the data for most measures in the survey uninterpretable and unusable.

These problems were, however, almost completely absent from the "number of cards held" measure (87 of 88 responded). Apparently, subjects in our sample did not find responding to this question inappropriate, and the question format appears to have made it much more easily understood. While this measure is perhaps a less than ideal dependent measure, it is so because of its relative insensitivity. It is a discrete variable with a somewhat limited potential range. Therefore, it should be rather difficult to show a statistically significant impact of a personality characteristic upon such a rough surrogate, making it a statistically conservative dependent measure.

Materials The temporal orientation scale (Jones, 1994) is a 22-item measure of a persons general present vs. future orientation (a trait). To prevent socially desirable responding the scale was embedded in a series of unrelated measures. Questions about credit usage, including balance amount, monthly minimum payment, and number of credit cards held were asked. Demographic questions about age, gender, employment, class and major were also included.

Procedure The survey was administered to subjects in small groups. Upon arrival, subjects were told that the purpose of the study was to collect general information about college students which would be of interest to marketers. They were then handed the packet and instructed to answer at their own pace. After finishing, subjects received proof of participation, were thanked and dismissed.

Results

Demographic data Results from frequency analyses of these data reflect the typical profile of a college undergraduate. Median age 20 (43.2%), with a range of 19 to 45. Most were female(67%), and unemployed (72.7%).

Credit card use in the sample As discussed earlier, the proportion of those who use credit cards has continued to increase since their introduction. The current group of subjects reflected this trend, with only 6.9% indicating that they do not use credit cards. Since we were interested in overuse, only subjects with credit cards were included in the analysis

Due to violations of normality in the distribution of the number of cards held, an ANOVA approach is clearly inappropriate. Not only is it impossible for this measure to take on negative values, but the measure is discrete, and an examination of the raw data indicates strong skew. Therefore, a loglinear model is the correct method of analysis.

The model consisted of the temporal orientation score (independent variable) the number of credit cards currently held (dependent variable), and whether or not the subject was employed (a covariate). The model was a simple Poisson regression with a log link (see table 1). As previous research had shown (Martell and Fitts, 1981), employment was positively related to number of credit cards held. Employed subjects held an average of 3.6 cards, while unemployed subjects held only 2.5 (ChiSquare=6.52, p<.02) As predicted, temporal orientation was also found to have a significant impact upon the number of credit cards held (ChiSquare=3.87, p<.05). This significant impact, however, was in the opposite direction to that which was predicted. Having a future temporal orientation was associated with holding more credit cards. These results are contrary to the argument that a present temporal orientation leads to credit card overuse. Higher values on the temporal orientation scale denote a future orientation. In this sample, subjects who scored higher also tended to have more credit cards.

Discussion

Several explanations can be posited to account for the observed, counterintuitive results. One is that college students do not fully grasp the nature of debt. We reject this explanation for several reasons. Specifically, there is evidence to suggest that college-aged students with some debt are quite good at calculating loan repayment schedules in their heads (Lewis and Venrooij, 1995). Thus, college students are capable of understanding the consequences of debt. In order to explain why those with a future temporal orientation should choose to hold more cards we may need to examine the origins of our initial hypothesis.

It was assumed that those who looked forward would be less likely to acquire the means to get into excessive debt. This was perhaps based upon the simplistic idea that "saving is good and debt is bad." The preeminence of this notion in western cultures can be traced back to the middle ages (see Warneryd, 1989 for an interesting discussion). If, however, one takes a life-cycle approach to debt and savings (see Modigliani, 1985 for a review) the results of this study seem to make more sense.

College students may have higher expectations than the rest of the population as to their ability to repay debt. They may feel confident in their ability to get a good job upon graduation, and thus may feel justified in their current use of credit cards (e.g., Dominitz and Manski, 1996). If that is the case, the results are not totally incompatible with a temporal orientation explanation, given that these subjects decision to spend now could be driven by their plans and expectations regarding their future financial outlook. It may be the case that "buying now and paying later" is logically enhanced by "living in the future" when that future is perceived to involve drastically improved earnings.

Further investigations should attempt to document the plausibility of this explanation. Extensions of this rsearch may point to yet another example of how "college sophomores in the laboratory" represent a unique subset of the population (Sears, 1986).

Limitations and Future Research

"Buy now, pay later" has been the prevalent message to consumers from credit card companies. They have made immediate gratification a reality. In a society driven by consumption, being in debt has become a way of life (Lea et al., 1993). We have demonstrated one aspect of credit consumption (number of credit cards held) which is affected by temporal orientation. While researchers have used number of credit cards as an indicator of problematic debt (e.g., OGuinn and Faber, 1989; dAstous, 1990), we recognize that it is a less-than-ideal dependent variable, and suggest that future research incorporate more sensitive measures of credit overuse (e.g., income to debt ratio).

The current finding may be unique to college students, so replication with non-student samples is imperative. Equally important is a better understanding of developmental influences on the acquisition of money-management skills and specific consumption patterns. Specifically, the process by which children are enculturated into a modern market economy where debt and savings play an important role, must be investigated (e.g., Webley, Levine, and Lewis, 1991). Similarly, the impact of early consumption experiences on dysfunctional buying behavior should be examined. dAstous (1990) reports, for instance, that patterns of compulsive buying begin to emerge in adolescence. Finally, by college-age, consumers have acquired some financial responsibility and make a variety of independent consumption decisions. Understanding the forces that shape such decisions can help explain much of these consumers adult behavior, including the decision to save and to acquire debt.

Future research should also explore other consumption behavior which can be potentially affected by an individuals temporal orientation. For instance, Livingstone and Lunt (1992) argue that "savings provide present resources drawn from past income and borrowing provides present resources drawn from future income" (p. 116). Studies of saving behavior might benefit from an understanding of consumers temporal orientation as it explains likelihood of planning, and general feelings of optimism as reinforced by general economic circumstances (Katona, 1975; Walsh, 1994). Similarly, impulse buying could be affected by temporal orientation. This consumption phenomenon specifically relates to a present orientation and the need for immediate gratification. As Rook (1987) points out, "marketing innovations such as credit cards, cash machines, 'instant credit, 24-hour retailing, home shopping networks, and telemarketing now make it easier than ever before for consumers to purchase things on impulse, " (p.189). Whether people with different temporal orientations are more or less likely to plan purchases or buy on impulse should be investigated. Finally, the potential interrelationship between credit overuse, propensity to save, and impulse buying could be investigated in the context of temporal orientation.

Policy Implications

The main goal of consumer protection efforts that focus on problem debt should be to empower consumers through education (Hill, 1994). Whether information is provided by government agencies, credit counseling entities, or the credit card industry, it is important to address the temporal perspective that colors consumers perceptions of their spending, borrowing and savings behavior. Consumer education programs may be more effective in preventing problematic debt if, for example, they frame specific purchases in terms of the amount of time it will take to repay them and the interest accumulated in such time. Also, consumers may re-think the way they use their credit cards if repayment is framed in terms of the number of work hours needed to repay specific purchases. In sum, cosumers may be able to make better financial decisions once they are aware of the impact of the present-future dichotomy on their behavior.